Why is a random error term included in an econometric model?
A)because many economic models have not been well developed yet and need to allow for inaccuracies
B)because some people are irrational
C)because there is intrinsic uncertainty in any economic activity due to individual decision making
D)because most estimating techniques are not well suited to work with a deterministic model.

Question

Quizplus · Accepted Answer

An econometric model includes a random error term to represent the intrinsic uncertainty in any economic activity due to individual decision making. This term accounts for factors that are unobservable or not included in the model, and helps to improve the accuracy of the estimates generated by the model.

Why Is a Random Error Term Included in an Econometric